Dispatches from the 10th Crusade

What’s Wrong with the World
is dedicated to the defense of
what remains of Christendom, the civilization made by the men of
the Cross of Christ. Athwart two hostile Powers we stand: the
Jihad and Liberalism...read more

The silent slaughter of European Keynesianism

There is an astounding tale that will, let us hope, one day be told properly, giving full range to the pulverizing improbability of it all: how it baffled settled assumptions, Left and Right, and turned the whole world on its head. Its main drama unfolded in late spring 2010, though its seeds were sown much earlier. Its consequences will surely be as unpredictable as its unfolding. A facile literary reference will perhaps suffice for a brief sketch of its lineaments:

The Greeks constructed a new wooden horse, a sturdy, impressive and mesmerizing contraption; and it in they concealed their most cunning and ruthless warriors, all bent on slaughter and rapine, and focused on a single class of men.

It appears that the subterfuge succeeded. The assassins were geniuses of their dismal trade.

The wily Greeks (aided, it is rumored, by Portuguese and Spaniards) effected a wholesale slaughter of the European Keynesians.

By late June the American Keynesians were pleading with European statesman to strengthen and extend stimulus measures; but they found to their dismay that all their old allies had been slain. Austerity was the somber watchword. Even the cries of deflationary trap and a second Great Depression from the pages of The New York Times would not avail them. Nary a Euro-Keynesian was left standing, not even a new Aeneas to flee to the west and found the new kingdom.

Comments (18)

The last real Keynesian was Keynes. Anybody who followed either had a wish list conceived in a dream world or, as is much more probable, saw a tool for opportunism & authority. The hackneyed and atrociously stupid phrase, "create jobs", as mouthed by failed lawyers who have stumbled into politics, having no place else to go and being pushed out of the house by their spouses, is part of the debris left unintended by Keynes but inevitably mangled by louts who never saw an idea they couldn't eviscerate.

Keynes was the only man capable of terrifying Bertie Russell, who would enter a discussion with him, as he himself put it, afraid of his life.
I'm sure Obama wouldn't be intimidated by JMK, it takes intelligence to appreciate a greater intelligence, and a dash of modesty to pay the homage due it.

The Chief Executive, pardon me while I wash out my mouth, went to Canada only because of possible unfavorable comparisons between Europe & it's direction, and the policies enacted here, which stand in stark and negative contrast. It might cause someone to think.
Obama need not have worried, the Times went so far as to say Europe's new direction went against accepted economic policy and that stimulus was necessary for that dying continent.
The "hair of the dog" theory gone mad.

All this means to the American Keynesians is that the Europeans just weren't smart enough. People like that always figure that, if the Right People (folks like, you know... them) get to be in charge, then things'll be nifty, no matter how many times their strategies have failed elsewhere. Self-righteousness means that you never have to learn anything from history.

"Today, they worry about spineless governments unable to take the tough actions needed to deal with the crisis. Perhaps tomorrow they will lose sleep over the mass demonstrations and social conflicts that tough economic policies have spawned."

"Few can predict which way market sentiment will move, least of all market participants themselves. Even with hindsight, it is sometimes not clear why markets go one way and not the other. Similar policies will produce different market reactions depending on the prevailing story, or fad of the moment. That is why steering the economy by the dictates of market confidence is a fool’s errand."

Of course, as Krugman points out, what is happening is actually politicians reacting to their fantasies about market sentiment. Actual markets are willing, eager even, to loan trillions more to the U.S., U.K., and the EU at bargain rates.

Paul, your grave dancing is somewhat premature. Out of curiousity, should the predictions of folks like Krugman, Delong, and Rodrik come to pass, what rationalizations will you use to avoid the obvious conclusion that Keynes was right?

Even with hindsight, it is sometimes not clear why markets go one way and not the other.

Ha, people have finally picked up on this little reality. I have been saying for 20 years now that "Economics is the one 'science' that is NOT accurate, even in hindsight."

They don't know what the heck caused the past, and they sure aren't likely to be right about their guesses for the future.

And lest we forget how we got here,

Al, you mean you actually TRUST a scorecard put out by the Center on Budget and Policy Priorities? Quick, how would you like to invest in some land in Florida, I can get you a real good piece! Right on their front page they tell us that they are a left-wing group. Now, I will admit that it is quite right to identify the Bush wars as a significant source of deficit. But their supposed impact of the Bush tax cuts is a left-wing dreamscape. They even give the game away in their own comments: if they don't have the capability to identify the effect of the Bush medicare increase, then they sure as heck don't have the muscle to correctly identify the results of the tax cuts.

Keynes was right about what? -- that the public sector can pick up the slack from the loss of private sector demand? Or that he was right about private sector confidence being in part a thing of mysterious animal spirits? Or is it that his latter-day pupils are right that the fears of sovereign debt deflation, as a generally natural consequence of private deflation, are overblown?

In any case, I'm not dancing on any graves here. I just amazed to discover them, these silent sepulchers to Keynes in Europe, and a little perplexed as to how to assimilate them. I never would have imagined that the Europeans would end up telling Obama and Geithner and Summers to go pound sand at the G20. Certainly not as early as 2010!

We saw this same loss of nerve on the Eurpoean continent in the 1930's before WWII. It is nothing new. What the effects will be this time is anyone's guess, but it seems as though Europe is looking for an economic savior. American think they already have one.

al, "moral bankruptcy goeth before financial crisis".
Or as Joe LaBonze just wrote," wait until the civil service slugs in Europe discover something may be asked of them, that they may just have to do something that is mildly and temporarily altruistic", "of course the reforms will be held responsible for the riots of these parasites, rather than the policies that are the sole reason for the meltdown".
Good old Joe, right on target.
Loved the graph al, what's that about making a graph that can prove anything? "How we got here". Al the Dems have been in control of both houses of Congress for almost four years now, or have they been hiding in a cave in Guam somewhere? Even liberals have to take responsibility sometimes.

Be more careful in your selection, the war continues, there's a beef up in Afghanistan, Freddie and Fannie are the pampered darlings of Dodd & Frank as well as the rest of the Dems, still eating up billions, and deficits are now a good thing. They may even save us. My, how a culture can change.

As for Keynes, try and make a distinction between his theories of stimulating demand, flawed as it was but sensible within bounds,& a permanently expanding welfare state, which as Europe shows, has & must have moral and financial limitations and dangers, the ones right under your nose al, hard as it is to give up your brand of religion.
Though politics being crime by another name, you may have a point about a statist comeback.

In the meantime, can you find a love object other than government? Perhaps a cabbage patch doll?

Paul, are you familiar with the work of Ian Bremmer on state capitalism? A friend recently recommended him to me, but I haven't had time to check into him yet, other than noticing that he has a new book out on the subject.

"Al, you mean you actually TRUST a scorecard put out by the Center on Budget and Policy Priorities?"

Easy to write but what is your problem with it on a substantial basis?

"Right on their front page they tell us that they are a left-wing group."

Now you're faulting them for being honest and forthright?

Paul, having read the back and forth over the Innertubes, Krugman, et al seem to have the better case. I thought I detected Schmittian glee in your post but apologies if it wasn't intended.

The developed countries are running a real time experiment so we shall see (except in the U.S. where the Republican Party is willing to tolerate others suffering in order to gain power, at which point we will likely again get a solid run of deficit spending, just one directed through tax cuts for the top end and a war or two).

It is good to revisit things from time to time and see who was right and who wasn't. In response to Paul's flowery celebration of the end of Keynes,

"By late June the American Keynesians were pleading with European statesman to strengthen and extend stimulus measures; but they found to their dismay that all their old allies had been slain. Austerity was the somber watchword. Even the cries of deflationary trap and a second Great Depression from the pages of The New York Times would not avail them. Nary a Euro-Keynesian was left standing, not even a new Aeneas to flee to the west and found the new kingdom."

I wrote,

"The developed countries are running a real time experiment so we shall see (except in the U.S. where the Republican Party is willing to tolerate others suffering in order to gain power, at which point we will likely again get a solid run of deficit spending, just one directed through tax cuts for the top end and a war or two)"

The ECB and the UK have gone the austerity route. How are things turning out? Not so good, it seems. Those who follow these things know that. The little guy with the pitchfork who sits on my left shoulder just prompted me to gloat, that's all.

Given the current state of things European it would perhaps be useful to once again mark Paul's thesis to market. How has the European rejection of Keynes worked out? Has austerity brought growth and prosperity? Has the ECB's obsession with inflation and its refusal to become a lender of last resort been a good thing?

One of the drawbacks to the blogging format is that, having written, the blogger moves on leaving matters hanging. Well, the claims made in this post are significant and deserve a regular marking to market. How has this rejection of Keynesian economics worked out for Europe? A failure to reflect on actual conditions is how special cases like the Broken Windows Fallacy get misapplied.

Okay, Al -- before you head off to pour the concrete or irritate barren lands or fish for salmon, I'll give you this.

In light of later events I revise I follows:

The true conspirator was not Greek at all but Italian. And he was aided by his own nation's strong Teutonic strain (especially in the north). The Eurozone could have absorbed Greece, Ireland, even Portugal. It could have finessed Spain and not trigger massive crisis. The ECB could get all the mess cleaaned up. But this it could not do for Italy.

Moreover, it is in the interest of most of the factions in power to elide the distinction between fiscal and monetary policy. That someone might support monetary expansion (on a considerable scale) alongside fiscal retrenchment -- well, let's just say that I know Al understands the distinctions just as well as I know that he will fight hard to conceal them.

How this Eurozone crisis breaks down, Al, in terms of the American Left and Right, is not real clear, to be perfectly clear. I have been skeptical of European integration ever since I heard about it. I cheer Cameron for not hesitating to pull the UK out of the Franco-German trap.

Meanwhile, the French and Germans have a very generous welfare state, auto-stabilizers and all -- are you really going to insult our intelligence and suddenly give up the European ideal of social democracy by presenting EU monetary intransigence as arch-conservatism in the American sense?

Nor can any reasonable person deny that the German posture is rational, in the sense of strictly in their economic interest. Germany needs to import demand.

So to discuss this you must talk beyond interest and address yourself to the moral world. This you won't do, so I've probably wasted my time even answering.

Post a comment

Note: In order to limit duplicate comments, please submit a comment only once. A comment may take a few minutes to appear beneath the article.

Although this site does not actively hold comments for moderation, some comments are automatically held by the blog system. For best results, limit the number of links (including links in your signature line to your own website) to under 3 per comment as all comments with a large number of links will be automatically held. If
your comment is held for any reason, please be patient and an author or administrator will approve it. Do not resubmit the same
comment as subsequent submissions of the same comment will be held as well.

Reverse the order of the digits in 31, then type the answer using letters instead of numbers, all lower case. (required):